Peter Reith

The abolition of the carbon tax and stopping the boats have been the signature promises fulfilled by Tony Abbott in his first year. He is right to set the agenda to repair fiscal policy and his deft handling of foreign affairs has gone a long way to build his standing as Prime Minister. And given that Australia's security must always be the government's first priority then Abbott has his priorities right.

But despite these positives, the government continues to pretend that labour market reform (LMR) is not urgent even though we have rising unemployment. It can't even get sufficiently organised to settle the terms of reference for the Productivity Commission (PC) report that was promised before the election.

All the signs are that the Abbott government will not push for significant reform. Photo: Alex Ellinghausen

Putting off LMR is not new; the promise to commission a PC report was itself a means to avoid facing the need to overturn Labor's reregulation of the labour market. There are other signs of a go slow, distractions and uncertainty about labour market policy.

The government's attention has been on the Royal Commission into Trade Unions. It is a useful exercise that I support but it's a distraction to the big structural reforms that are needed. Another distraction, favoured by the government, is the very weak claim that paid parental leave is a big reform.

Tale of two economies: The government and Australian business should look to New Zealand for clues on how to reform the labour market. Photo: Reuters

Secondly, the government's "reform" of greenfield agreements, currently in the parliament, is to return to arbitration based on uncompetitive conditions. To me, this is an indication the government has little commitment to a system of minimum standards, which was once championed by Paul Keating and which has been Coalition policy for many years.

Thirdly, it's also a bad sign when the government thinks that it's a big reform to make the Fair Work Commission bigger with more commissioners in a new appellate jurisdiction.

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It is hard not to conclude that the government will, at its best, introduce minor incremental reforms at a snail's pace. Having done very little while in government, the next Coalition opposition will then watch the next Labor government overturn anything Abbott has done.

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The way things are today, there will be no real reform for another 20 years and the best chance of reform is an economic crisis.

If business continues its current approach to reform, our country will endure the slow economic burn of an archaic system that is well past its expiry date. The system is pushing up costs in the resources sector to such an extent that further investments look unlikely as a result of being uncompetitive. Next we will find that the unions are doing to the services industries what the unions have done to Ford, Holden and many others in manufacturing.

I may sound pessimistic but all the signs are that the Abbott government will not push for significant reform.

Business has gone to sleep on labour reform. It gets an occasional mention in the press but there is no determined push for reform. For example, recently the Australian Chamber of Commerce took on the issue of penalty rates; it claimed a win in the Fair Work Commission. But to me, the result was proof that it takes three years and hundreds of thousands of dollars to get an outcome that is, at best, a pathetic substitute for a modern system.

But I don't criticise business; instead I say business is about the only prospect we have of real reform. But to achieve it, business would need to run a campaign on a scale never tried in Australia. And it would need a new strategy, more resources and a united business community.

Business should establish a new labour market think tank.

The incrementalist reform implemented in 1996 worked well for 12 years. But in 2008 Labor killed the incrementalist approach with its re-regulation.

So instead of sticking with the status quo and incrementalism, business needs to broaden the debate. Business should call for wholesale reform; big reform along the lines of the New Zealand reforms in the 1990s. A NZ-style reform could be introduced with a grandfather clause so that no one is worse off in the transition to the better system. Business needs to draft its vision in detail and not wait for pages of incremental reforms that will be the best the PC will produce.

Business should establish a new labour market think tank. It would be the hub of the campaign. It would run excursions to NZ to show how much better their system is than ours. It would concentrate on youth unemployment, unfair dismissal, penalty rates and the many problems caused by Labor's Fair Work. It would press for the abolition of cabotage and other arrangements used by Labor to the detriment of our economy. And the new hub would give Labor and the unions a taste of their own medicine and help establish the real reform Australia desperately needs.

Peter Reith was a Howard government minister and is a Fairfax columnist.